Pensions and Politics

In the 1950s a radical change took place affecting pensions. The state pension, following years of campaigning by trade unionists and others, had been established much earlier but like the minimum wage today was always inadequate. Before the War decent occupational pensions were restricted mainly to Civil Servants, Local Government, Railway workers and management employees. In the 1950s occupational pensions, for the first time, were extended to millions of blue-collar and white-collar workers who had not previously received them.

The shortage of labour meant that companies were forced to improve terms and conditions in order to attract and retain staff and the trade unions were more than happy to take up the fight for decent pensions on behalf of their members. Pensions negotiations became part of the annual pay round along with pay and holidays. Workers in the main UK industries came to expect a decent occupational, usually defined benefit pension as part of their employment package. When the Wilson government in 1964 tried to introduce a universal,fully funded national state pension scheme which would offer employees outside the occupational schemes similar benefits it was opposed by major employers, the financial services industry and surprisingly the trade unions who saw pensions negotiations as part of their role in the workplace.

By the 1980s and despite the economic crises of the 1970s the UK’s occupational pensions schemes had become amongst the best in the world. However in the late 1980s Thatcher’s Chancellor, Nigel Lawson stipulated that no fund could accrue assets whose value was greater than 5% of its pensions liabilities. The argument for this was the belief, by the Government, that some companies were hiding profits in their pension funds to avoid pay tax. They were given the options of either taking a pensions contribution holiday, reducing the contributions made by employees or improving pensions benefits. Unsurprisingly most opted for taking a pensions holiday. No doubt some companies were hiding profits in their funds but in the years to come many of those funds would find themselves with a pensions deficit. A solution that planned for the possibility and likelihood of future economic crises would have been much more appropriate and this happened in the early 1990s when the UK found itself in recession as the Government tried to remain within the Exchange Rate Mechanism (ERM).

In 1991 in began to emerge that Sir Robert Maxwell had been systematically milking his companies pension fund to prop up his ailing business empire. They had been rumours for years that all was not well but his large debts and dishonest business practices went unchallenged due to his threats of libel action and his large army of lawyers and financial advisors. After his death of emerged he has raised at least £425 million from the pension fund parrot the largest fraud in modern British corporate history.

Thousands of his employees suddenly found themselves facing a pensions nightmare, with the loss or huge reduction in their retirement pensions. However this was not the only scandal to hit the pensions industry in the in the 1990s. It emerged that millions of people who had moved from occupational pensions to personal pensions introduced by Margaret Thatcher’s government during the late 1980s and early 1990s were worse off than they would have been if they had stuck to their occupational schemes. Although case of mis-selling were exposed it was also clear that the Government were also at fault by allowing big pension providers access to public-spirited workers who were then persuaded to swap their decent occupational pensions for risky and inferior private schemes.

However probably the biggest blow to the future of decent occupational pensions occurred following the election of New Labour in 1997. Gordon brown decided to remove the tax credit which pension funds received on dividend payments from companies in which they were invested. Brown wasn’t short of people warning him that his plans could do serious damage to occupational pensions. One paper produced by the Treasury predicted a drop of up tp£75 billion in the value of private pension plans.

The Inland Revenue warned that pension schemes would need an extra £3 billion to 4 billion a year to meet their commitments and future pension benefits would suffer. The Treasury report also predicted that employers would have to contribute an extra £10 billion a year for the next 10 to 15 years to get pension scheme funding back on track. Nevertheless Brown’s plans went ahead and were a major contribution to the crisis that occupational pensions have faced in recent years. No one can deny that the 2008/9 financial crisis and the fact that people live longer today than they did 40/50 years ago have had a massive effect on the pensions industry and in particular occupational pensions. These problems would have had to be dealt with anyway but the current policies being pursued by both major parties in the UK don’t look like solving the problem of the looming pensions crisis.

Whilst auto-enrolment is a step in the right direction, for those who in the past would have had to rely on only a state pension, it is no replacement for a decent final salary pension scheme. It is also important that those workers lucky enough to still enjoy a decent occupational pension do everything they can to defend them.

In my view it’s only the labour movement and the trade unions in particular that can campaign for and develop the new ideas that will lead to a lasting solutions to the looming pensions crisis. Do we need to look again at the Wilson governments ideas for a universal, fully funded earning related, national state pension scheme? What lessons can we learn from the state schemes that are common in Europe and in particular the Scandinavian countries? What about the system in the USA were workers organisations have control over their own funds like the teachers and the automobile industry pensions schemes? Whatever the solution, the debate needs to start now. If not, future generations of workers will have only a retirement of pensions poverty and hardship to look forward to.

Norman Candy